Not to scare anybody…

Depositors in Cyprus watch as they’re being financially wiped out in order to bail out the banks. From dailyfinance.com.

I am really, really not in the market for new conspiracy theories. Honest. I’m not going out of my way to read meanings into things. I don’t pay much attention to Alex Jones or his lefty counterparts. I love the work of Amy Goodman (and give her credence on all her reporting), but I’ve stopped listening lately. The real news (i.e., the stuff Huffington Post puts up to remind us life isn’t all about pictures of Kim Kardashian showing her pregnant A$$) is depressing enough without drinking deeply from the well of paranoia.

And then BOOM! there was Boston, which got put under a microscope immediately. And then Ka-POWEY! A big piece of landing gear off one of the 9/11 planes just shows up in Manhattan next to the Islamic Cultural Center with a rope and pulley wrapped around it! I’ve tried to stay reasonable, but reason has not been on the table here for awhile.

And now, friends are seeking me out, telling me about the conspiracies THEY’VE heard about, and asking do I believe them? One of said people being a medical professional I see. And frequently, the conspiracies THEY’VE heard about have some juice as well.

Some things swept under the rug in the last few weeks:

* Somebody shorted a lot of gold several weeks ago and drove the price of the mineral down several hundred dollars an ounce on the commodities exchanges. By ‘a lot’, we’re talking 500 tons. At one time. Quantities of gold like that aren’t in private hands–it’s a government or a really tbtf bank. Why would someone with gold holdings that big short the metal in such an open way–especially since a wrong guess (hey, even a correct guess) would cost them billions? I leave you to ponder the story put up by James Howard Kunstler a few weeks ago. Kunstler is a writer on peak oil, but he has previously declared himself immune to conspiracy theories. But he explains better than I can the whys and wherefores of this activity. And he thinks the NY Times article following so quickly on the heels of the metal’s downgrade smells fishy. As with all such conspiracy theories, the question is ‘qui bono’. The chief beneficiary of lower gold prices are people who own paper currencies measured against the price of gold. That would be the US first and foremost. It would also be the grifters who sold people paper certificates for gold rather than physical gold itself.

* Related to the above and barely discussed: Last fall, Germany demanded to examine its physical gold kept in the US. The gold had been put here during the days of the Cold War for safekeeping, and up to now, the Germans had been happy to get written reports from the US about its holdings and their whereabouts (most of it is thought to be at Fort Knox, but there are also vaults of German gold in New York at the Fed). After getting the runaround, the Germans are now politely but insistently asking for their gold to be returned. The US has been dragging its feet on this request. http://www.cnbc.com/id/49540593 and has now told the Germans it will take seven years to give their gold back to them. Does Germany now distrust the US to the point where they now want their gold sitting in a vault in Frankfurt? And now some European countries are telling depositors that they cannot redeem their gold deposits with gold.

That story dove-tails with a story that the US Mint has stopped minting low-cost ‘collector’s coins’ made of gold. The Mint is blaming the problem on a shortage of material, stating that they’ve run out of coin blanks. but the shortage says that small investors are still buying gold–and the US mint is having trouble keeping up with demand even after prices fell several hundred dollars. Is it possible that the Germans know something about the gold and suspect that the US is liquidating it? As I write this (4/29), investors have once again proven bullish this AM on gold.

* Cyprus banking takedown–could it happen here? About a month ago, people with savings accounts in the banks in Cyprus got their money confiscated in order to help pay back the banks. An explanation of how that happened is here–basically: In Cyprus, bank deposits, which in theory are senior (meaning everyone else who gives money to the bank gets wiped out before they lose a penny) are proving to be not so. The reason is that there isn’t much left in the way of equity, there is pretty much no subordinated debt. The senior debt (still junior to deposits) is mainly sovereign or central bank debt. The Germans are insisting on “private sector participation” which means someone other than central banks need to take losses.

In other word, this wasn’t just about hurting crime syndicates in Russia that were using Cyprus as a convenient place to hide money. And here’s where things get dicey. Many of the major TBTF banks in the US have multi-trillion dollar exposure on derivatives or other devices (the infamous Credit Default Swaps, a form of hedging insurance that raised havoc in 2008). In an economic meltdown involving derivatives or CDOs, the FDIC rules are apparently subject to change. Instead of depositors receiving their insured money back, they can be given scrip for shares in the bank instead. Ellen Brown of CounterPunch explains:

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay… But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.”  The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

This is already being touted as a solution to the Eurozone problems. In the US, the idea put forward is that bank customers are by proxy shareholders in the bank and should take a haircut if the bank goes under. The FDIC is increasingly challenged to guard people’s money when banks get in trouble. By law, all depositors shares are covered up to $250,000. But with a minor adjustment or two with the law, account-holders could be forced to line up with other claimants to accept pennies on the dollar after a bank goes south.  Here’s a longer explanation of how this could come about from Jonathan Turley’s blog.

Happy Monday!

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